SAIC, Inc. (SAI)
(1/2/07)

SAIC, Inc. focuses primarily on the defense space, but also provides technology solutions to commercial markets.  The company has been around since 1969, but went public only this past October, when its IPO was introduced.  The IPO was the second largest for 2006, though in relative terms, it's $17 IPO price is a far cry from the halcyon days of 2000.  One thing that jumped out at me when I looked at the chart is the almost textbook wave pattern, which I think is suggesting a nice trading opportunity.  

As suggested in the chart above, SAI broke out in a 5-wave impulse pattern when the stock IPOed back in October, reaching an intraday high of 21.10 on October 30.  The stock subsequently corrected all the way back to the start of the impulse pattern, reaching an intraday low of 17.41 on December 27.  That decline traced out an overlapping 7-wave pattern, which gives all the appearances of a classic Wave (1)-Wave (2) setup.  If correct, it implies a Wave (3) rally lies ahead.  Depending on whether the Wave (1) and Wave (3) relationship develops at 1.62%, 2.0% or 2.62%, there would be an opportunity for Wave (3) highs at 23.70, 25.19 to 27.60.  The key to whether this outlook is in effect depends on the pullback not violating support at 17.21, where Wave (1) started.  If this outlook is incorrect, and an ABC pattern is playing out, then our expectation would still be for a retracement from the pullback level, in which the stock could retest 21 in a recovery from current levels.   You might consider an entry on a break through 18, with a stop right at 17, since a violation of that level invalidates the wave count.  No point, therefore, in extending the risk beyond that.  There is some resistance just below 20, which should be overcome if our wave model plays out.

For an option play, you might consider the August  2007 $20 Call (symbol SAIHD), currently selling for $1.60.  This is still OTM, but the Delta is at 0.46, which meets our minimum acceptable Delta, and if we are correct would offer some nice appreciation on the contract.

©Copyright 2007 Tony Carrion.  All content presented is the exclusive property of Market Harmonics. com, which is owned & operated by T. Carrion & Co., LLC, and may not be duplicated or distributed without the express written consent of the author.